Inside Asian Gaming

October 2011 | INSIDE ASIAN GAMING 19 Cover Story Friends in high places—NagaWorld in Phnom Penh, Cambodia those points what matters is not simply who is first to put something up. What counts for a sustainable IR industry is who has the best transport infrastructure, the best quality of execution and management, and the most transparent regulatory and governmental system—including competitive tax rates. When judged by those criteria, other jurisdictions that haven’t yet completed IRs but are on the road to doing so—or are talking a good game on the topic—must be taken as serious contenders. Vietnam already has its first IR project well underway with an opening due in the first half of 2013. Its first phase investment costing US$430million is only one thirteenth ofwhatwasspentonMBSalone,althoughthe Vietnam scheme is officially slated ultimately to be a US$4.2 billion multi-phase and multi- branded project. The differential in capital spend on IRs in Singapore andVietnam is not surprising given the earlier stage of social and economic development Vietnam is in compared to Singapore and its neighbours Malaysia and Indonesia. And Vietnamese aren’t currently allowed to gamble in the country’s casinos—unless they are one of the 3.7 million ‘Overseas Vietnamese’ with access to a foreign passport. But like the Singapore IRs and Resorts World Manila, the Vietnam project is backed by the brand power and marketing support of a major international operator—in this case MGM Resorts International. MGM Grand Ho Tram—the first phase of a multi- property Ho Tram Strip scheme constructed by Asian Coast Development Ltd—is due to open in the first half of 2013. But whether Vietnam will be able to stay ahead of the pack in gaming revenue and regulatory terms—if the bigger and wealthier regional jurisdictions with fewer or no restrictions on domestic players mobilise their plans for resort-style casinos—is another matter. Another potential contender in the race is Cambodia, where NagaCorp has established a clear lead in that country in terms of infrastructure, market positioning and profitability. Taiwan and Japan have also been talking for many years about introducing IRs. Here Inside Asian Gaming gives a rundown—in alphabetical order— of the main jurisdictions bidding to join the IR elite. The only investment-grade gaming property currently in the Cambodian market is NagaWorld in the capital Phnom Penh. Its owner and operator—Hong Kong-listed NagaCorp—is also the only company to have been granted a casino licence within a 200-kilometre radius of the country’s capital, Phnom Penh. That exclusivity is due to last until 2065. But if a week is considered to be a long time in politics, then it’s not clear just how cast-iron that exclusivity deal will prove to be. Hun Sen, the incumbent prime minister of Cambodia who approved it, will be 113 years old by the time the agreement expires. And Cambodia has a turbulent political history to put it mildly. But NagaCorp, founded by Malaysian businessman Chen Lip Keong, does have a seemingly robust business model as well as some friends in high places. Aside from long-term exclusivity, the principles are: low capital and labour costs relative to the region; and a market positioning that is carefully pitched. That equates to player check-in limits of around US$25,000—way below the stratospheric levels of credit-fuelled VIP roll seen in Macau casinos’ high roller rooms (thereby avoiding the worst extremes of baccarat hold volatility). But it also means a quality of customer and probity of business practice well above the cheap-and-not-so- cheerful gambling operations seen in some of Cambodia’s border casinos. NagaWorld isn’t currently a ‘true’ integrated resort. It doesn’t yet have a shopping mall and international-standard dining (though it does have the country’s largest conference-cum-banqueting hall). Changes are comingsoon. In JuneNagaCorp announced a deal with its founder, CEO and majority shareholder Dr Chen to expand its facilities. Within a three- to five-year period, he will develop two projects next to NagaWorld—NagaCity Walk, a two-level pedestrian mall linked to the existing site, plus a complex including hotel rooms, more shops, and more convention facilities. The combined development costs are expected to be US$369 million. On completion, Naga will acquire the buildings from Dr Chen, and give him shares or convertible bonds to the capital value of the project. After conversion of the instrument issued to Dr Chen, minority shareholders in NagaCorp will be diluted by approximately 42%, though analysts point out that shareholder dilution should be quickly offset by increased earnings generated from the new project. Union Gaming said in a note to investors that the 7,300 square metres of extra gaming space allocated to TSCLK should accommodate between 200 to 250 table games and 500 to 600 slots. Union Gaming estimated NagaWorld’s gaming revenues in 2011 from its existing facilities would be US$217 million, less third-party Cambodia